Elite Commercial Reit’s 9-month DPU shrinks 25.6% on higher financing costs
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Newport Road in Cardiff, Wales, is one of Elite Commercial Reit's properties.
PHOTO: THE BUSINESS TIMES FILE
Mia Pei
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SINGAPORE – Elite Commercial Reit said its distribution per unit (DPU) for the nine months ended Sept 30 fell 25.6 per cent to 2.82 pence, compared with 3.79 pence during the same period in 2022.
Despite a 20.4 per cent rise in net property income for the three quarters to £32.5 million (S$54.3 million), distributable income dropped 25.1 per cent to £13.6 million on the year due to higher financing costs, said the manager on Tuesday.
Revenue for the period rose 2 per cent to £28.5 million.
The manager attributed the real estate investment trust’s (Reit) “resilient performance” to a 13.1 per cent inflation-linked rise in rents since the start of April 2023 and the completion of dilapidation settlements for nine assets, as well as reduced debt after the repayment of its existing loans.
“This is partially offset by the absence of rental income from vacated assets and increased borrowing costs from the rise in Sterling Overnight Index Average rates,” it said.
The manager said a significant portion of the Reit’s gross proceeds from capital recycling were used to repay loans, saving borrowing costs and lowering the holding costs of the vacant properties.
As at Sept 30, the Reit’s gearing ratio stood at 45.8 per cent, a slight improvement from 46 per cent a quarter ago.
The gearing ratio, also known as aggregated leverage, is the ratio of a Reit’s total debt to its total assets.
The manager said it aims to further reduce gearing through strategic capital recycling and asset management strategies to increase Reit’s asset value.
The Reit’s net asset value per unit remains stable at £0.51 as at the end of September.
Under the gearing ratio cap of 50 per cent set by the Monetary Authority of Singapore for Singapore-listed Reits, Elite Commercial Reit has a debt headroom of £40 million, and about 62 per cent of its interest exposure is fixed.
With an interest rate coverage ratio of 3.3 times, every interest rate increase of 100 basis points would drag down its DPU by approximately 5 per cent, said the manager.
As the Bank of England has maintained its bank rate at its most recent meeting, the manager expects borrowing costs for Elite Commercial Reit to stabilise.
The Reit’s portfolio occupancy rate stood at 92.1 per cent as at the end of September, with a weighted average lease expiry of 4.3 years.
The manager highlighted that more than 99 per cent of the leases were signed directly with the British government, which provides “credit stability and income certainty”.
It added that its portfolio’s primary occupier is the Britain’s largest public service department, the Department of Works and Pensions, making the Reit’s assets a critical part of the country’s public infrastructure.
Mr Joshua Liaw, chief executive of Elite Commercial Reit’s manager, said: “We are especially pleased to be able to divest five of the Reit’s vacant assets at a considerable premium to valuation, and are making good headway on unlocking value for our unit holders for the remaining vacant assets through a mix of asset management strategies including re-letting, change of use and disposal.”
As at Oct 25, the Reit had realised five divestments for an aggregate sale consideration of £3.4 million, which represented a premium of about 12.2 per cent to the total valuation of the five assets.
“Our active capital recycling strategy and prudent capital management have also improved Elite Reit’s financial flexibility,” said Mr Liaw, noting that the Reit will continue focusing on strengthening its balance sheet against macro uncertainties.
Elite Commercial Reit’s counter closed 6.5 per cent higher at 24.5 pence on Tuesday. THE BUSINESS TIMES
